How Declaring Business Bankruptcy Affects Owners

One of the major reasons business owners take action to separate their business legally from their personal finances is to ensure that one is not affected by the financial issues of the other. That being said, there are still some ways that a bankruptcy can affect an individual's personal finances.

Debt Liability in an LLC

Debt liability in an LLC depends on the individual's standing within the company. General partners in a liability may be responsible for a company's debts on a personal level, whereas limited partners will usually be protected.

Other elements may also play a factor, such as arrangements made to guarantee a debt. As an example, a limited partner might guarantee a business loan; in that event, the fact that they are a limited partner will not protect them from that particular debt.

Corporations and Bankruptcy

In most situations, individual owners are protected from a corporation's bankruptcy proceedings. But like an LLC, if the individual owner had personally guaranteed any of the debts in question, the individual owner may become personally responsible for that debt. Loans that have been cosigned by owners in their personal name will also fall under this category.

Bankruptcy in a Partnership

In a partnership, the bankruptcy will first affect the assets of the partnership itself. Once the partnership has been liquidated, partners may become liable for any still existing debts if they were considered to be personally liable for them.

Thus, different partners may incur different amounts of liability during the bankruptcy, depending on the debts that they themselves either cosigned or guaranteed.

Issues With a Sole Proprietorship

The above assumes that the business is a standalone entity. Some business owners have their businesses registered as a sole proprietorship instead. Though this is sensible for some, a sole proprietorship is, in many ways, simply considered self-employed income; it does not afford the same levels of protection that having a separate business would. Thus, business assets and debts will usually be treated as personal assets and debts during a bankruptcy.

Business lawyers Chester County can advise business owners on the appropriate actions to take should their financial situation need to undergo any modifications. Bankruptcy, debt consolidation, debt settlements and other issues can all interact with a business in unanticipated ways depending on the structure of both the business and the debt.

When Business Issues Turn Into Legal Issues

Business ownership comes with certain inherent risk of business legal issues. Some issues are relatively minor such as disputes between employees and employers while others can be far more significant. For example, an intellectual property dispute can cause a number of challenges for businesses, especially when they depend on that property for branding. These are a few of the reasons why a business owner may need to work with business lawyers Chester County.

Making the right initial moves

When a business is being launched there are often many benefits to working with Chester County business lawyers. Not only does a business have to be concerned about using the proper business structure for reporting and tax purposes but having an attorney can help a CEO craft employment and vendor agreements can help prevent legal problems down the road. While a start-up operation may not think there are many legal issues to deal with, they are often surprised to discover the number of pitfalls that not having the proper legal advice can create.

Nurturing financial relationships

Business owners who are considering seeking financing often have to deal with complex contracts regardless of whether the funding comes from a local bank or a venture capital firm. These contracts often contain onerous clauses that may not be particularly helpful for a business. Having the ability to contact business lawyers in Chester County to review all contracts before signing them can prevent costly mistakes.

Expanding property ownership

When a business decides it is time to purchase real estate to expand their operation there are a few things that must be considered. Negotiations over purchase price, issues that can occur with zoning and financing matters may all require the assistance of Chester County business lawyers. Businesses need someone who understands the laws as they apply to real estate purchases, financing of real estate and zoning issues. An attorney can be a valuable partner when dealing with all types of real estate issues.

Every business is unique but regardless of the size of the business, there are always potential legal issues which must be dealt with. Whether the business is a start-up or well-established, it is never a good idea to try to deal with the complex legal issues alone. Having the services of business lawyers in Chester County from the inception of a business can help save many hours of work trying to resolve business issues later.